NEW YORK: Wall Street stocks tumbled into the red on Wednesday (March 22) after the Federal Reserve (Fed) unveiled a ninth straight interest rate hike despite worries surrounding the banking sector.
The US central bank raised the benchmark lending rate by a quarter-point, underscoring its determination to tackle stubborn inflation.
But policymakers are also trying to avoid further upheaval in the commercial banking sector, following the swift collapse of Silicon Valley Bank and fears of contagion.
The three major US stock indices, which were mostly directionless prior to the
Fed announcement, jumped higher then deflated as investors digested the accompanying statement and chair Jerome Powell's subsequent Q&A session.
By closing bell, all three indices were off more than 1.6%.
The Dow Jones Industrial Average fell 530.49 points, or 1.63%, to 32,030.11, the S&P 500 lost 65.9 points, or 1.65%, to 3,936.97 and the Nasdaq Composite dropped 190.15 points, or 1.6%, to 11,669.96.
Fed chair Jerome Powell stressed in a press conference that the central bank is committed to learning the lessons from this episode of banking turmoil, while noting that financial conditions have tightened as well.
“The statement was dovish, but he did say that it’s hard to judge a recession,” said Peter Cardillo of Spartan Capital.
Powell also added that the Fed needs to strengthen supervision and regulation of banks.
“Anytime you put forward more regulation, it’s obviously a negative in terms of stocks,” Cardillo said.
The sell-off was exacerbated by Treasury Secretary Janet Yellen’s remarks before lawmakers that the Federal Deposit Insurance Corporation was not considering “blanket insurance” for deposits arising from recent strife in the sector.
Regional banking shares slipped on Wednesday as well, with the troubled First Republic Bank ending 15.5% lower. PacWest Bancorp plummeted 17.1% while KeyCorp lost 5.6%.
“The market was encouraged when it heard that the Fed had considered pausing completely and then it was disappointed when Powell clarified that their hands weren’t tied and that they can keep raising rates if they need to,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina. – AFP, Reuters